E.ON Profit Falls on Higher Debt From Acquisitions (Update1)
March 10, 2010, 2:18 AM EST(Adds earnings estimate in second paragraph.)
By Nicholas Comfort
March 10 (Bloomberg) -- E.ON AG, Germany’s largest utility, said full-year profit fell 4.8 percent after it took on debt to acquire power plants and add clients.
Adjusted net income, which excludes changes in the value of fuel hedging, dropped to 5.33 billion euros ($7.25 billion) from 5.6 billion euros a year earlier, the company said today in a statement. That missed the 5.81 billion-euro average estimate of 28 analysts surveyed by Bloomberg. E.ON uses adjusted net to calculate its dividend.
Chief Executive Officer Wulf Bernotat, who is scheduled to retire this year, bought energy assets from Spain to Siberia in 2008 as regulators opened national markets to competition. Those purchases saddled the company with debt and prompted a plan to raise more than 10 billion euros in cash by selling infrastructure and subsidiaries.
“The company should show it can defy the economic crisis,” Mario Kristl, an analyst with DZ Bank AG who recommends buying E.ON stock, said in a March 8 note to clients. “Investors will probably focus on new statements regarding the divestment plan.”
E.ON has fallen 8 percent this year in Frankfurt trading, more than the 4.3 percent decline of the 31-company Dow Jones Stoxx Utilities Index, which includes the Dusseldorf-based energy supplier.
Asset Sales
The utility has raised close to 6 billion euros after selling high-voltage power lines, almost 20 percent of its electricity generation capacity in Germany and a holding company for stakes in local energy providers, according to a Feb. 16 presentation.
E.ON is examining the sale of its U.S. utility business, valued at about 4 billion euros by analysts, to reduce debt, a person briefed on the matter said March 2. The person declined to be identified because the plans are private. E.ON spokesman Mirko Kahre declined to comment at the time.
The energy supplier is also grappling with a drop in demand as the global economic slump causes industrial clients to idle factories. Power and natural-gas use fell about 5 percent last year, according to the Berlin-based BDEW utility group.
Lower consumption meant European spot prices for gas fell to about half the level set in long-term contracts with E.ON’s suppliers last year, reducing the profitability of its gas unit.
OAO Gazprom, the world’s biggest gas producer, said last month that it agreed to consider the use of spot prices in long- term contracts with European customers to retain market share.
Nuclear Phase-Out
Separately, German utilities stand to benefit from a government plan to scrap the phase-out of atomic power.
Chancellor Angela Merkel has vowed to overturn a decade-old law on retiring the country’s reactors earlier than European peers after efforts were blocked by her Social Democrat partners in the previous government. She was elected with the coalition parties of her choice in September.
E.ON said in August that Vice Chairman Johannes Teyssen will replace Bernotat as CEO from May 1. Bernotat has been at the helm of the utility for seven years.
--Editors: Stephen Cunningham, Amanda Jordan
To contact the reporter on this story: Nicholas Comfort in Dusseldorf via the Frankfurt newsroom at ncomfort1@bloomberg.net
To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net
